We’ve reached a major milestone on our ‘Roadmap to success’ for commercial projects — we’re past halfway! Now that we’ve scoped the work needed and obtained and assessed quotes, it’s commitment time.

This month, in Step 6 on our Roadmap, we take a look at the contracting process.

 

STEP 7: ENTERING INTO A CONTRACT

Once you have selected the builder you want to work with, it’s time to enter into a contract. It is a legal requirement to have a contract in place and there is good reason for this. But don’t be tempted to skip straight to the ‘Where do I sign?’ stage without some forethought.

Doing your due diligence now has the potential to save you a whole lot of angst (and money) down the track. Contractual disputes can leave you with a bad taste in your mouth and tie up resources for months after completion, instead of enjoying what would have been an otherwise successful project.

Choosing the right contract

First up, choose the correct contract. Different scopes and different types of buildings require different contracts. Always use industry standard contracts from organisations like Master Builders, Housing Industry Association or the Australian Standards.

Exercise caution if you receive a contract that was written by the builder as it may be heavily biased toward the builder. If you are unsure, or require more guidance before signing the contract, call the organisation that wrote the contract. Alternatively, seek external legal advice — a small financial investment now might save a huge cost later.

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Check the conditions

Before signing the contract, read it in full and be sure you can meet all conditions outlined.

For example, like anyone, builders love to be paid on time. If proposed payment terms are within seven days, check with the person or organisation releasing the money that their approvals and processing times cover this, before signing the contract. Penalties may be imposed if you cannot meet the conditions outlined.

Inclusions

There are some key components you want to have in the contract for your own protection. We recommend you include the following.

• An amount for liquidated damages — This is a predetermined amount the builder must pay you if they fail to complete your project on time. Without this, there is not much encouragement for the builder to finish when they say they will. This amount should not be unreasonable and should equal the amount you stand to lose if the project is not completed on time. For example, this may be calculated having regard to loss of income, loss of rent, or rent you are paying to occupy elsewhere for any project extension period.
• A 12-month defect liability period with a monetary retention in the contract — A retention is a portion (e.g. a fixed percentage) of the total contract price that is withheld for a period after the contract’s completion. A condition such as this requires the builder to address all defects that arise within 12 months of the project’s completion. Withholding a small retention provides an excellent incentive for your builder act to quickly should any issues arise after the works are complete. This gives you a strong 12-month warranty, in addition to the statutory warranties the builder must abide by beyond this period.

 

Next month, we’ll walk through the final steps you need to take before construction starts. In the meantime, if you have any questions, we’re here to help.

You can find us at:

Head Office (AU)
7/121 Newmarket Road
Windsor QLD 4030
www.core4service.com.au
hello@core4service.com
1300 267 333